Banking on legislation

The ‘bail-in’ clause, in a draft bill, would change the relationship between the customer and the bank

The recapitalisation of public sector banks (PSBs) through bailouts, be they as budgetary allocation or some sort of bond issue, has evoked much discussion. The Insolvency and Bankruptcy Code is cited as adequate punishment for defaulting borrower companies. However, under the code, the resolution process has brought little succour to banks as the recovery rate from defaulting companies has so far been merely 15-20% of the original amount lent. Meanwhile, there is no attempt so far by the Reserve Bank of India (RBI) to issue guidance to PSBs to blacklist these entities from getting further loans or prevent their managements from retaining a majority equity stake during the resolution process as penalty for the huge haircuts being taken by banks.

The result is that banks have been continually reporting losses in each successive quarter. Six PSBs have already been placed under prompt corrective action by the RBI. Even the State Bank of India was still stuck with non-performing assets worth ₹1,88,068 crore as on June 2017.

Deposits are at risk

According to the Financial Stability Board (FSB) Peer Review Report August 2016, 63% of the financial investments ordinary Indians make are within the banking system; PSBs account for 63% of the market share while private banks control 18%. Given the shaky financial condition of most public banks, deposits in these banks are very much at risk. In the best case scenario, there could be a government bailout. Other possibilities are the transfer of their assets and liabilities to a bridge service provider, a merger with an existing bank, or even liquidation. But none of these options guarantees safety of customer money.

What adds to the disquiet is the Financial Resolution and Deposit Insurance (FRDI) Bill, 2017 that was referred to a joint parliamentary committee this August after cabinet approval. This covers bankruptcy of businesses such as banks and insurance. Financial resolution includes solutions for banks facing ‘material’ or ‘imminent’ risk to viability depending on their capital and asset worth.

This Bill also introduces the provision for a “bail-in”, whose purpose is to provide capital to absorb the losses of a bank and ensure its survival. Here, survival does not mean safety of depositors’ money, but restoration of capital of the bank. The bail-in empowers the proposed Resolution Corporation to cancel a liability owed by the bank or change the form of an existing liability to another security.

All of us are aware that money in a savings or fixed deposit account is a liability owed by the bank to its customer. The bank promises to repay the money when demanded by the customer. Since the customer has not taken any security from the bank when handing over his money, legally, the customer is an unsecured creditor of the bank. With a ‘bail-in’, the bank simply refuses repayment of a customer’s money or instead issues securities such as preference shares (with no guarantee of fixed dividends) to a customer. This is in lieu of his deposits which are then used for recapitalisation of the bank.

The only money owed to depositors that cannot be bailed-in is the amount covered by deposit insurance. The Deposit Insurance and Credit Guarantee Corporation Act, 1961 which insured deposits worth one lakh for each depositor has been repealed by the cabinet. The FRDI Bill further empowers the Resolution Corporation to decide the amount insured for each depositor. Thus, it is possible that the insured amounts will not only vary for customers in different banks, but may also be different for different customers of the same bank.

No longer safe

The ‘bail-in’ clause changes the nature of relationship between the customer and the bank. It would mean that money is no longer safe in a bank. An account would lose its sovereign guarantee and instead become an investment. Putting away money in a bank would be akin to buying shares of a company or units of a mutual fund. The customer would need to monitor the level of toxicity of his bank with respect to its losses and accordingly keep switching bank accounts.

The banking saga has all the ingredients of a full-fledged Shakespearean tragedy. Out of the three protagonists, the government as the majority shareholder and the corporate borrower are wearing their victimhood as a badge of honour. Whereas, the real victim, the customer, is the unsung hero coerced into parting with his money.

The reality is that without customer deposits, a bank cannot carry on its business. It has to be understood that banking business is not the same as any other business. A bank customer cannot be treated on a par with an unsecured creditor of a regular business. The customer is not privy to the lending decisions in a bank unlike any vendor or investor dealing with a company. Hence the rules for bankruptcy of a regular business cannot be applied to bank failures. For the sake of justice and fairness to its citizens, the government must take a stand and defy the FSB’s diktat on the ‘bail-in’ clause.

by Meera Nangia who is Associate Professor in Commerce, University of Delhi

 

https://www.thehindu.com/opinion/op-ed/banking-on-legislation/article20005363.ece

Forfeiture of Booking Amount is not allowed

MahaRera Appellate Tribunal order dt 29 June 2020 holding that forfeiture of booking amount is bad as the customers are forced to sign on one sided clauses. Relying on SC judgement in Pioneer Land and Infrastructure Vs. Govindan Raghavan in Civil Appeal No.72238 of 2O78 decided on 2nd April 2019 by Supreme Court, directions to refund the booking amount of Rs.6.95 lacs towards 5 % flat value

This judgement now mandates that one sided clauses used to forfeit booking amounts will not be upheld by courts… Presumption of unfair negotiation and one sided clauses…

Another pro consumer and testing time for developers….

Click Here for the judgement -21466 OF 2019 

Speech of India’s greatest lawyer Nani Palkhivala on Emergency

Nani Palkhivala is said to be one of the greatest lawyers, best CEOs, crusader for citizen’s rights, greatest orators and the one who got Supreme Court accept Basic Structure Doctrine (imposing limits on lawmakers on amending Constitution). Also known to be the best Law/ Finance Minister India never had.

Mitron app removed from Google Play store

Please delete the app from your phone

Mitron app — the popular Indian alternative for TikTok — has been removed from Google Play store. The app had over 5 million downloads. As of now, neither Google nor Mitron has revealed details about the removal of the application from the Play store.

Mitron app — the popular Indian alternative for TikTok — has been removed from Google Play store on Tuesday. The app had over 5 million downloads. As of now, neither Google nor Mitron has revealed details about the removal of the application from the Play store. However, chances are strong that the app has been taken down due to the security issues that indianexpress.com and other media houses reported earlier this week.

If you have the Mitron app already downloaded on your phone you will still able to use it but we suggest you don’t as the app comes with several vulnerabilities as we reported earlier. Mitron app has been in the news for all the wrong reasons of late. The app owner Shibank Agarwal, a student of IIT Roorkee, bought the source code of the app from a Pakistani coding company Qboxus and rebranded the app as Mitron and launched in India. Before officially launching the app in India Agarwal and his team ‘t even customise the coding or change the privacy policy.

Irfan Sheikh of Qboxus from Lahore confirmed to indianexpress.com that Agarwal did reach out to the company buy the source code of TicTic and launch as Mitron in India. He also accepted the fact that “Mitron app has privacy issues because the app developer has not uploaded the privacy policy.” Sheikh, however, said that the company does not encourage their buyers to just put it out there for public use as it as it is.

READ full report here | Mitron app is risky to use, says cyber security expert

Satyajit Sinha, cybersecurity researcher at Counterpoint told indianexpress.com: “It’s risky to use Mitron app given it doesn’t have any additional firewall or software security on top of the source code. The privacy policy is weak and that can put user data at risk in the long run.”

If you have Mitron app installed on your phone we highly recommend uninstalling the app right away and not use it. We checked the Mitron app and found there’s no way you can delete your account from the app. Users can either log out of the app or simply uninstall it. The settings menu is also missing on the app now.

We also recommend you to beware of all the clones of Mitron available on Google Play store. You must always check the developer first before installing an app on your smartphone.

https://indianexpress.com/article/technology/tech-news-technology/mitron-app-removed-google-play-store-how-to-delete-6438736/

PMO: PM Cares Fund Does Not Come Under RTI Act | Faye D’Souza

Fresh controversy after PMO rejected the RTI filed to know about the donation in the PM cares fund and what the money is being used for. The PMO said that the PM CARES fund is not a public authority hence it doesn’t come under the ambit of the RTI act.

Guest : Shailesh Gandhi, RTI Activist Javed Ansari, Senior Journalist Kailash Vasudev, Senior Advocate, SC

 

U.S. Consulate General announces the Notice of Funding Opportunity (NOFOs)

 

Please find below the links of Notice of Funding Opportunity (NOFOs) uploaded on grants.gov.  Grants related queries may be addressed to MumbaiGrants@state.gov

  1. M-NOFO-20-100       Workshops to promote interfaith dialogue on college campuses                                   

https://www.grants.gov/web/grants/view-opportunity.html?oppId=325606

 

  1. M-NOFO-20-101        Workshops to Support TIP Law Enforcement

https://www.grants.gov/web/grants/view-opportunity.html?oppId=325637

  1. M-NOFO-20-102        The Road from the Indo-Pacific Business Forum Speakers Series

https://www.grants.gov/web/grants/view-opportunity.html?oppId=325639

 

  1. M-NOFO-20-103    —  Stopping the Spread of Disinformation – Training Emerging Journalists

https://www.grants.gov/web/grants/view-opportunity.html?oppId=325764

 

Regards,

U.S. Consulate General Mumbai

Public Affairs Section

 

**********************************

U.S. Consulate General, Mumbai

C-49, G Block, Bandra Kurla Complex

Bandra East

Mumbai 400 051, INDIA
Phone: 91-22-26724000

Fax: 91-22-26724421

Email: mumbaipublicaffairs@state.gov

Website: https://in.usembassy.gov/embassy-consulates/mumbai/

Facebook: www.facebook.com/Mumbai.usconsulate

 

This email is unclassified based on the definitions provided in E.O. 13526

 

 

Evacuation of stranded Indian Nationals from Foreign Countries

If anyone has relatives abroad who need to return to India this is air India flights schedule

Click Here for the Flight Plans

===================================================================

Indian nationals stranded in Australia due to COVID19 and with compelling needs to travel to India are advised to register themselves and submit required details in the following link

https://www.cgisydney.gov.in/

Registration closes 10th May

Those nationals who have individually contacted the Mission/Posts earlier for assistance are also requested to register themselves using the above link.

It may be noted that the purpose of the exercise is only to collect details for planning purposes and no decision has been taken yet regarding the operation of any flights from Australia to India. As and when a decision is taken by the Government of India in this regard, the Consulate will make an announcement on its website and its social media accounts.

Zerick Dastur – WEBINAR : RED ZONE FOR CONTRACTS

COMMERCIAL CONTRACTS AND CHALLENGES ARISING FROM THE COVID 19 PANDEMIC

 

On 07th May 2020 at 6.30 pm – By ADVOCATE MR. ZERICK DASTUR

Click Here to join https://zoom.us/j/8487251418
In association with Consumer Resources & ON-LYNE

The unprecedented situation in view of the pandemic and the consequent lockdown imposed by the Government of India has impacted the performance of many commercial contracts and posed a number of questions on the rights and obligations of the parties to a contract. The webinar will address the following topics :

1. Force Majeure and Frustration of Contract – Recognizing your contractual rights, Risk Assessment and Risk Management.

2. “Once bitten twice shy” – The approach to adopt while entering into future contracts.

3. Analyzing the present legal scenario, the views adopted by Indian Courts and the recent measures undertaken by the Government across various sectors.

4. Position on employee payments during lockdown.

5. Q&A

 

================================

Zerick Dastur practices in the field of Court litigation, Dispute Resolution, Arbitration and securities Law. Zerick is a triple Gold Medalist from Mumbai University. Zerick’s practice covers diverse areas of Corporate, Commercial and Regulatory disputes. Zerick is representing a number of clients in the manufacturing, engineering, Port , Infrastructure and Mining Sectors. Zerick has represented clients in domestic and international, commercial arbitration matters. Zerick’s practice involves representing clients before various Courts like the Supreme Court, High Courts, Statutory Tribunals and Regulators including the Securities Appellate Tribunal, the Securities and Exchange Board of India, the NCLT, CCI etc. Zerick was a former Partner at the Law Firm, J. Sagar Associates.
He has been involved in a number of matters involving issues of Constitution Law, contract law and arbitrations. Zerick writes for various national newspapers and publications on Corporate, Commercial and Competition Law. He is a regular speaker at events organised by Economic Times,  VC Circle, Indian Merchant Chambers, Corporate Knowledge Foundation and the World Zoroastrian Chamber of Commerce.
He is a Member of the Law Committee of Indian Merchant Chambers

 

VIRUS SHAKES “REAL ESTATE” FOUNDATION

The Real Estate sector in India has been experiencing a downturn for quite some time. Severe liquidity crunch has plagued this sector and so have policy reforms, legislations and structural changes. These issues were merely the tip of the iceberg, as the Covid – 19 virus opened up a new front for the real estate sector.

Propelled by the burgeoning crisis,  the Confederation of Real Estate Developers Association of India (“CREDAI”) requested the  Ministry of Housing and Urban Affairs to include Covid -19 as a condition of force majeure  under Section 6 of the Real Estate (Regulation and Development) Act, 2016 (“RERA”) and that loans by real estate developers should not be classified as Non-Performing Assets in case of default on interest or principal repayment.

Force Majeure under RERA

 

Section 6 of RERA provides that if an event of force majeure (i.e. a case of war, flood, drought, fire, cyclone, earthquake or any other calamity caused by nature affecting the regular development of the real estate project) occurs, then on an application made by the promoter, the authority after considering the facts of the particular case (including that there was no default on the part of the promoter) can extend the registration for not more than one year.

It can be argued that Covid – 19 could possibly be included in “any other calamity caused by nature” in the explanation to the section. It is pertinent to note that Ministry of Finance, Department of Expenditure Procurement and Policy decision vide its office memorandum dated 19th February, 2020 clarified that the disruption of the supply chain as result of the spread of corona virus should be considered as a case of “natural calamity” and force majeure clause may be invoked.

The above section merely enjoins a delay in the performance of the contract and does not release the developer from its contractual obligations. The above section also makes it abundantly clear that facts of each case would be considered separately, and decisions taken. The period of extension in the case of Covid – 19 could possibly be not more that 3 to 4 months.

Various remedial steps taken by statutory and regulatory authorities to alleviate the difficulties of the Real Estate Sector

 

Ø The Maharashtra Real Estate Regulatory Authority vide an Order dated 2nd April, 2020 inter alia relying on section 6 of RERA, extended the period of validity for registration of MahaRERA Registered projects where completion date, revised completion date or extended completion date expires on or after 15th March 2020 by three months. Further, the time limits of all the statutory compliances, which were due in March / April / May was also extended to June 30, 2020.

Ø The Karnataka Real Estate Regulatory Authority vide a circular dated 4th April, 2020 extended the period of validity for registration of K-RERA Registered projects where completion date (including revised completion date) expires on or after 15th March 2020 by three months. Further, the time limits of all the statutory compliances, which were due in March / April / May was also extended to June 30, 2020.

Ø The Uttar Pradesh Real Estate Regulatory Authority on 14th April, 2020 has decided to extend by three months the date of completion of the projects where the date of completion is between March 15, 2020 and December 31, 2020.

Ø The Reserve Bank of India (“RBI”) vide a press release dated 27th March, 2020 has directed all commercial banks (including regional rural banks, small finance banks and local area banks), co-operative banks, all-India Financial Institutions, and NBFCs (including housing finance companies and micro-finance institutions) to allow a moratorium of three months on payment of instalments in respect of all term loans outstanding as on March 1, 2020. Further, in respect of working capital facilities sanctioned in the form of cash credit/overdraft, lending institutions have been permitted to allow a deferment of three months on payment of interest in respect of all such facilities outstanding as on March 1, 2020. It has also been clarified that moratorium/deferment provided will not result in asset classification downgrade.

As per the statement of the Governor (RBI) dated 17th April, 2020, it has been decided that in respect of all accounts for which lending institutions decide to grant moratorium or deferment, and which were standard as on March 1, 2020, the 90-day NPA norm will exclude the moratorium period. Further, the RBI allowed non-bank financial companies to extend the date for commencement of commercial operations (DCCO) for loans given to commercial real estate by additional one year,  over and above the one-year extension permitted in normal course, without considering it as restructuring. Banks had been directed to provide similar relief earlier.

Ø The Securities Exchange Board of India vide a circular dated 23rd March, 2020 has extended the due date for regulatory filings and compliances for Real Estate Investment Trusts and Infrastructure Investment Trusts for the period ending March 31, 2020 by one  month  over  and  above  the  timelines,  prescribed  under SEBI  (Infrastructure Investment  Trusts)  Regulations,  2014 (InvIT  Regulations) and  SEBI  (Real  estate Investment  Trusts)  Regulations,  2014 (REIT  Regulations) and  circulars  issued thereunder.

Relaxation on Construction activities

 

By an Order dated 15th April, 2020, the Ministry of Home Affairs has issued detailed guidelines for allowing certain additional activities to be undertaken from 20th Aril, 2020 in non – containment zones (containment zones are required to be demarcated by the respective States and Union Territories) across India, subject to all preparatory arrangements with regard to social distancing being implemented. One of these additional activities include certain construction activities which are as follows:

Ø Construction of roads,  irrigation    projects,   buildings   and  all  kinds  of industrial projects,  including   MSMEs,  in  rural  areas,  i.e.,   outside the limits  of municipal corporations   and municipalities;    and  all  kinds  of projects in industrial  estates.

Ø Construction of renewable energy projects.

Ø Continuation of works  in  construction   projects,  within  the limits  of municipal corporations and municipalities,  where workers  are available   on site and  no workers are required  to be brought in  from outside  (in  situ  construction).

Each State and Union Territory in the country will decide in which areas and to what extent the above activities can be allowed. However, this may relieve some pressure from the real estate sector. It remains to be seen whether real estate hotspots like Mumbai, Delhi and Bangalore will be permitted to allow construction activities considering that they are Covid-19 hotspots as well.

As can be seen from the above discussion, the situation with respect to Covid -19  is dynamic, and the real estate sector paradigm is bound to change as a result. Therefore, we will keep you updated in case of any further decisions, measures, notifications by the Government and other authorities with respect to the real estate sector.

 

We trust that the above update is helpful for you. If you require any further clarifications, please feel free to contact us.

Zerick Dastur <zerick@zdlegal.com>